24/05/2017
Differentiation between Revenue and Income
There are a number of financial terms that often get misused in day-to-day conversation. The disconnect between common and professional usage can lead to a great deal of confusion for the first-time investor or entrepreneur who lacks a formal financial education. Revenue and income are often used interchangeably by the average person, but in an accounting or corporate governance context, these terms refer to very specific concepts that differ in important ways.
When analyzing a company's income statement, revenue is found at the top of the page. This is the number from which all calculations originate. Revenue is simply the total amount of cash generated by the sale of products or services associated with the company's primary operations, less any returns or discounts. It can also be thought of as net sales. For a grocery store, this includes the sale of anything found in the store, from vegetables to floral arrangements. However, many companies also have alternate income streams from investments or the sale of other assets. These funds are not counted as revenue because they do not stem from the main business, so they are accounted for elsewhere in the income statement.
Income is often considered a synonym for revenue, as both terms refer to positive cash flow. However, in a financial context, the term income almost always refers to the bottom line, or net income. Also referred to as net profit, this number represents the total amount of cash that remains from the original amount of revenue after accounting for all expenses and additional income. Expenses include the cost of goods sold (COGS); operating expenses such as rent, utilities, and payroll; interest paid on debts; depreciation and amortization expenses; tax costs; and one-time payments due to extraordinary events such as lawsuits. Additional income streams, as referenced above, can include interest accrued on investments or funds from the sale of physical or intangible assets, such as equipment or bonds.
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